Failure to Pay Quarterly Estimated Taxes Can Lead to Trouble with the IRS for Maryland Taxpayers

Maryland taxpayers must make quarterly estimated tax payments to the Internal Revenue Service (IRS) (and the Comptroller of Maryland) under various circumstances. While the most common scenario involves working as a sole proprietor or independent contractor, there are numerous other scenarios that can trigger an obligation to make quarterly tax payments as well. In this article, US International Tax Advisors provides an overview of the IRS’ quarterly estimated tax payment rules and the consequences of failing to file quarterly returns.

When Must Taxpayers File Quarterly Estimated Tax Returns with the IRS?

In general, taxpayers must make quarterly estimated tax payments “if they expect to have a tax liability of $1,000 or more when they file their return.” As the IRS explains, this obligation applies to any tax liability that is not subject to an automatic withholding during the tax year. This means that taxpayers in Maryland may have an obligation to make quarterly estimated tax payments to the IRS for:

• Income earned from a sole proprietorship or as an independent contractor
• Distributions from a company to its owners
• Interest, dividends and sale proceeds from investments
• Rent income
• Prizes and awards
• Pension payments
• Wages or salary for which the employer does not make a withholding

Keep in mind that while these are the IRS’ rules, state law requires taxpayers to make quarterly estimated payments to the Comptroller of Maryland as well. More information about Maryland’s quarterly estimated tax payment requirements can be found on the Comptroller’s website.

What Are the Consequences of Failing to Make Quarterly Estimated Tax Payments?

Taxpayers who fail to make quarterly estimated tax payments are subject to an underpayment penalty if they owe $1,000 or more on Tax Day or fail to pay at least 90 percent of their expected tax liability through their quarterly payments (in most cases). The IRS calculates underpayment penalties based on the amount of the underpayment, the length of time the amount went unpaid and the applicable interest rate. Additionally, as the IRS states, “We charge interest on penalties;” and, while it is possible to dispute underpayment penalties in some cases, taxpayers must have a very good excuse for why they failed to make their quarterly payments as required by law.

If you haven’t made quarterly estimated tax payments to the IRS, you will want to remedy the situation before the IRS audits your returns. An experienced Maryland tax attorney can help you determine your best path forward.

Request an Appointment with US International Tax Advisors

If you need to remedy a failure to make estimated quarterly tax payments to the IRS or the Comptroller of Maryland, we encourage you to contact us promptly to discuss your options in confidence. To request an appointment with US International Tax Advisors, call 844-796-8565 or contact us confidentially online today.